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Post Brexit: UK needs India more than India needs UK
Posted:May 1, 2017
 
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By Bhaswati Mukherjee
 
On the eve of one of the most strongly contested French presidential elections in history, the result of which may fundamentally impact the European Union, a united ‘EU 27’ set tough "divorce terms" for UK on 29 April, 2017, at a Brussels summit marked by unusual harmony. EU leaders unanimously agreed to tough negotiating guidelines for Brexit talks, suggesting they will demand that Britain agrees on payments to the bloc before considering a new trade deal.  There was quick agreement to adopt draft guidelines issued by European Council President Donald Tusk in March 2017. A senior EU source said the leaders’ decision took only one minute of discussion. The EU’s chief Brexit negotiator, Michel Barnier, said it was in Britain’s interests for the EU to be unified, as it would boost the chances of a deal.
 
EU sources have indicated that when the formal negotiations begin in June after the UK elections, preconditions to a future trade deal that the UK would need to resolve would include issues of citizens’ rights and their free movement, the estimated €60bn (£51bn) divorce bill and the Irish border settlement between Northern Ireland and the Republic, which has been fluid since the Good Friday agreement.
 
As outgoing French President François Hollande said: “We must not be punitive, but at the same time it’s clear that EU knows how to defend its interests, and Britain will have a less good position outside the EU than in the EU.” The comments were echoed by the Belgian Prime Minister Charles Michel who said there was no such thing as a “free Brexit”. Luxembourg’s Prime Minister Xavier Bettel also ruled out the idea of British Prime Minister Theresa May gaining any advantage from an election win. “It’s an internal problem she wants to resolve in the Conservative party, to have not a hard Brexit or a soft Brexit, but Theresa’s Brexit,” he said. German Chancellor Angela Merkel noted: “We will hold the negotiations on separation first. The separation negotiations include the rights of citizens of our States in the UK and of UK citizens in the EU.”
 
Sources in Brussels insist that the four core single-market freedoms are “indivisible”. This implies a veto on May’s hope of keeping “elements of a single market” without free movement of people.  Further, the 27 countries will negotiate with Britain as a unified block, relying on the principle that “nothing is agreed until everything is agreed”. No individual countries will be allowed back-channel chats on future trade deals while the transition is still being talked through. The Commission insist there should be a phased approach to Britain’s withdrawal. The main priority would be to give certainty to EU citizens about their legal status. Once that is decided, the European Council will give the go ahead for next phase of withdrawal, which would involve working out a framework for the future relationship. The UK will continue budget payments until 2020.
 
May has so far ducked the key question of what future relationship UK will enjoy with the EU post Brexit. At present, 44% of UK’s exports go to the single market. Protectionist talk by the UK PM referring to UK becoming “a fully independent sovereign country” which once again would have the freedom to make its own decisions only increased business worries and adversely impacted the pound which fell to a 31-year low against the dollar after this speech. 
 
The Economist (April 2017) in its analysis of the real meaning of Brexit noted the difficulty of reconciling the conflicting demands of a ‘hard’ versus a ‘soft’ Brexit. This has emerged in a recent survey published by NatCen, a social research organization.  Both the ‘leave’ and ‘remain’ voters support free trade and many other advantages of EU membership but also favour tougher controls on migration from the EU. The ruling Conservative Party is totally divided on this issue with 44% accepting free movement in exchange for free trade and 55% totally opposed to this deal. 37% of those surveyed expect the UK to get a bad deal from the negotiations in any case.
 
Senior officials of India's Ministry of External Affairs and the Ministry of Commerce are bemused by recent visits of UK ministers, reportedly to work on a bilateral free trade agreement (FTA). Indian sources point out that the content of the India-UK FTA would depend on the kind of deal and terms of exit Britain negotiates with the EU. The UK is not allowed to sign a FTA with India as long as it remains part of the EU.  There is no evidence that the UK and India could reach an agreement any more quickly than the current India-EU BITA, which is currently under discussion. In a hard Brexit, Indian business in UK will be denied access to the EU market. This could lead to flight of Indian business from UK to Europe. The situation is complex since India will insist on inclusion of Mode 4 under WTO (Mode 4 covers temporary movement of natural persons). 
 
If the UK is interested in a trade deal with India, it will have to be flexible on Mode 4 and open up its immigration. The irony could scarcely be more acute. Britain is about to leave the European Union because of EU’s insistence on free movement of people and is seeking new partnerships with fast-growing emerging nations. Emerging nations, however, insist on free movement of people as a condition for concluding free trade deals for goods and services. Not, perhaps, what the Prime Minister May has in mind for Brexit!
 
The flamboyant UK Foreign Secretary, Boris Johnson, doing his visit to Delhi, demanded a new “turbocharged” relationship with India. In typical Boris fashion, he suggested that it could be sketched out with a pencil on the back of an envelope. However, the back of the envelope would have to include phrases such as “free movement of people” and “greater access to the UK for students and IT professionals”.
 
May should understand that the UK is overwhelmingly a mature, services-based economy, and India, with about 60 per cent of its economic activity accounted for by services, is not far behind. Thus, a free trade deal would have to involve a different attitude with regard to allowing Indian workers into the UK.  The stark reality that Prime Minister May will have to accept is that like the EU, India is a much larger economy than the UK, which is in a relatively weaker bargaining position for precisely the same reason as it is with the EU.  India would have to deliver a difficult message to its former coloniser, that UK needs India more than India needs UK. India needs the EU more. India, like the EU, would expect flexibility from the UK on the same issue that led to Brexit in the first instance – free movement of people and professionals across borders.  Ultimately, what India and EU needs are identical: not a hard Brexit, not May’s Brexit, but a soft Brexit.  Indeed, this will not be a velvet divorce!
 
(The author is a former Indian Ambassador to the Netherlands who has dealt extensively with Europe. Comments and suggestions can be sent to editor@spsindia.in)
 
 
 
 
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